Sunday, May 16, 2010

Jeff Stephens (Attorney) and Rod Eagleson Articles

Wednesday, December 2, 2009

The Value of a Wind Energy Land Association

In today’s agribusiness environment, a quite land rush is underway for potential wind energy projects. Particularly, east of the Mississippi wind developers have been buying up land lease/option contracts in 10,000 to 40,000 acre plots for future development.

In the Midwest, this land grab is comparable to the California Gold Rush of the late 1840s. With access to major energy markets, this part of America also has favorable wind speeds and is underdeveloped or behind other exploited areas around the country for wind power.

Individual landowners are being enticed by large energy corporations into land lease agreements that may pay $40 an acre or $3,000 to $5,500 per megawatt for wind turbine placement when the value is much higher. Other additional payments might come in the form of other allowances for the staging of auxiliary equipment, utility transmission lines, and access roads, etc., but only if the landowner insists and ensures that it is in the contract.

Moreover, the selling tactics used by wind developers speak volumes for the growing state of wind energy development. Developers are trained and likely to individually seek out and prey upon property owners with little or no negotiation skills or legal background. This strategy has caused great difficulty and heartache for many unincorporated landowners.

Do not be persuaded into signing an agreement below its normal value. There are also numerous complaints about where the turbines are to be placed on one’s property. When shown the initial site plan, you may be led to believe that one or two wind turbines will be installed on a particular site, if you hurry up and sign the agreement. However, the contracts drafted by the developers will allow for placement in other locations and this is likely to occur as the project moves forward.

According to Paul Gipe’s (a Wind Energy Specialist) website, one of the best ways to deal with wind energy developer is to form a Land Association. A co-op for your protection. This forces the wind developer to deal with the association instead of isolated, uninformed landowners. This model plan is used quite commonly in Germany. In addition, it so happens that these types of associations are gaining momentum in our American west.

Landowners must understand the value of forming a Wind Energy Land Association that can leverage and protect the landowners’ interest. The purpose of an association is to have property owners share information about community relations, contract negotiations, land values, wind potential, etc. This allows landowners to deal with potential developers as a group that can bargain for better lease prices and protect them from high pressure, low offer tactics. Revenue sharing is also spelled out in the association according to landholder rights and local resident needs.

In summary, with many wind companies scurrying to sign up area land for future wind farm development, property owners need to be able to discern all the possible issues associated with wind power options and land lease contracts (i.e. – the loss of land rights, fair market value lease prices, and how will it affect their farm business and land values).

The power lies with the people, as it should in our country, and the strength and purpose of a land association is to fulfill the collective needs of its group. The association can provide for local empowerment and information sharing, establish long-term commitments from both members and the developers, and protect its members from unscrupulous and unethical tactics concerning wind development. Perhaps most importantly, land associations allow landowners to bargain collectively for better lease prices and revenue payments. As the group shares in the wind-generated profits, a win/win situation for the landowners and the local community is created.

Tuesday, October 20, 2009

Wind Energy Secrets

In many rural communities, the wind power of today is unlike the wind power of yesterday. The small wind powering systems that were once used to pump water have changed with the times. These little machines now are 400 foot tall, towering, high-tech structures that dot the American landscape.

As a result, the massive build out of these large-scale wind energy systems also bring about a new meaning to farming and land ownership. A lot of property rights are currently being tied to these big money projects as big government promotes renewable energy standards and subsidy programs that push wind farm development onto America’s greatest resource – the farmer.

The purpose of this article is to generically expose a few secrets related to wind energy lease agreements. Most wind energy contracts are very complex documents and are hard to decode, even for the local attorney. Farmers need to educate themselves about the ins-and-outs of wind energy development and how to effectively negotiate and bargain for the best pricing arrangement.

For negotiation purposes, an example of typical contract payment terms that are offered by various developers, are as follows:

• One-time turbine installation payment: $1,000 to $2,500/MW
• MET tower fee: $0 to $2,000 per year payment
• One-time adjacent property easement payment: $1,000 to $5,000 (with no turbine onsite)
• One-time Attorney/Financial Advisor payment: $100-$300
• Initial Signing/Land Development Option payment: $1 to $20/acre (yearly)
• One-time road construction payment: $1/linear ft or up to $30/rod
• Transmission line construction payment: $2 to $6/rod

Lastly, wind developers are procuring power purchase agreements that pay on average $49 to $57 per MWH with a 2 to 3% increase each year, over a normal 20 to 30 year contract term. A 1.5 MW wind turbine based on a 25% (Department Of Energy - 2008 national average) operating efficiency capacity rating at $49/MWH would yield about $160,965 in gross revenue annually. This doesn't include factoring in the generous production tax credits, grant money or additional allowances for carbon offsets. These are worth about another $15/MWH or extra $49,275 in gross revenue per year that the developer and/or utility company usually inherits, not the landowner.

Wind power, which is renewable, is fast becoming to energy generation what the American farmer is to our bread and butter. As most landowners are lucky to get 5% of the gross revenue stream per turbine (without government subsidies), the American farmer must aggressively negotiate for the better deal. Poor contract negotiation skills will lead to the loss of land rights and less money in your pocket.


Sunday, October 11, 2009


The Wind Energy Game and Landowner Dilemmas

The old saying goes, “Bulls make money…Bears make money…and Pigs get slaughtered”. In today’s business environment, market volatility speaks volumes and the rules on how to play the game define everything - especially, your profits and losses. This is the game American farmer’s play every day with the commodity market and now, within the agricultural industry, there is a new game in town. Wind Power!

But how does a property owner make the most money at the wind energy game, if they do not know the rules? Who wins…the developer, utility company…landowner?

Players, especially the landowners, soon find that there are many dilemmas and pitfalls associated with wind power land option contracts or lease agreements with numerous easements on, under and over your land.

In the past few years, the wind power energy market has accelerated rapidly since the Department of Energy (DOE) found that wind power could supply the U.S. with 20% of its electricity needs by 2030.

Most recently, in 2008, the American Wind Energy Association (AWEA) reported that the United States dethroned Germany as the world leader in aggregate wind generating capacity. This market boom has developed into the hottest ticket for property owners and economic development as many see the fruits of these large commercial wind farms dot the American rural landscape in real time.

Conversely, wind developers may be exploiting American landowners for the advancement of wind energy farms as they eagerly try to lease up hefty land plots (e.g. - 10,000 to 40,000 acres). Many of these companies are currently in a feeding frenzy mode for buying up lease agreements at low rates (i.e. - known as option contracts) for the future development of large-scale wind projects.

Therefore, landowners need to exercise caution and understand all aspects of the wind power game before signing or entering into any option or lease agreement. The following is a short list of pertinent concerns and things to remember:

• All contracts are negotiable but most developers tend not to negotiate. The best way to negotiate wind power contracts is to form a Wind Energy Association since all wind energy contracts are written to progressively protect the developer. Lengthy contract requirements are normally 30 pages or more.
• The first 10 years are the most profitable time for wind farm developers due to the frontloading and issuance of generous tax incentives. The normal payback period for a wind turbine is 9 to 11 years, just about the time the manufacture warranty expires. Most contracts are written with options to make them last 60 years or more.
• Ensure that fixed or royalty payment options adequately increase with the proper rate of inflation. Some contracts use the Consumer Price Index (CPI) to forecast future revenue increases. This representation does not adequately gage the rate of inflation over time.
• The number one mechanical problem associated with wind turbines is the gearbox issue. Replacement occurs every 2 to 4 years.
Lastly, property owners also need to understand what rights are lost or what hidden protection clauses are in lease agreements or option contracts with easements.

A short list is as follows:
• Confidentiality clause – this prevents any discussion with other area landowners over specific contract terms.
• Length of the lease clause – the developer’s term limits or extensions rights of the contract may prevent other future business opportunities with other developers.
• Compensation clause – This is dynamic because there are many payment options for the developing parcel of land for wind energy production (e.g. - percentage of revenue from electric sales, lump sum payouts, fixed land payouts or a combo of each). Also there are tax consequences for each payment type including land improvements. Renewable energy credits (RECs) and federal tax credits may also be negotiated as part of the compensation package for land owners of large-scale projects if the developer receives these as additional compensation from the government.
• Assignment clause – This clause may permit the wind developer to sell or transfer the lease rights to another party at any time for any reason, even if the other party is about to go bankrupt and will not be able to repair the turbine(s) or any damages caused to your land.
• Choice of law/Venue clause – Any litigation that arises under the contract must apply to the laws of the state in which the developer is located and/or heard by the court in the developer’s home state.

In summary, it is wise to consult with legal counsel experienced in wind power land lease agreements for investment opportunities. In addition, there are a lot of other concerns associated with property lease agreements, such as but not limited to; land scope and usage, liens and encumbrances, contract termination agreements, bonding and insurance, bankruptcy or insolvency, site remediation and end of project life, permits and conditions, creditor responsibilities, federal farm programs, third party liability, employee safety, etc.

Monday, September 28, 2009

Wind Farm Exit Strategies

At the start of 2009, there were a total 626 large-scale U. S. wind projects scheduled for development. However, the current commercial banking climate and the world financial situation have led to a downturn in the wind power market. Throughout the world, wind turbine orders fell by 50% in the first half of 2009 as compared to 2008. Current economic pressure has also forced many large wind manufacturers to slash jobs (e.g. - Vestas Wind Systems laid off about 1,900 employees and LM Glasfiber, the world’s largest maker of turbine blades, laid off more than 1,000 workers).

In addition, the largest voice for wind energy - Mr. T. Boone Pickens, has scrapped his largest wind energy farm in the U.S. due to a tight financial market and cheap natural gas prices. The Pickens’ plan was to invest $12 billion for wind power throughout 200,000 leased acres in northern Texas.

As a result, farmers must be aware of the current trends within the wind industry market as wind power is always changing directions, especially related to capital investment. Therefore, it is essential that farmers negotiate their wind energy contract carefully before a signature appears on an option contract/lease agreement. Key elements must be in place that best represent the interest of the landowner. Just signing the contact without negotiating is ludicrous and exactly what the wind developer expects and relies upon. Signing without consideration or negotiation can lead to undeveloped land use and no future income potential for the landowner.

Therefore, establishing a wind farm exit strategy offers the best opportunity (tool) that can be used to insulate the farmer from the loss of land rights to productive ground. This tactic is designed to make the wind developer perform a site-specific arrangement within a mandated time frame or the contract becomes null and void.

In short, this type of performance-based approach offers the greatest course of action if the developer does not develop the land for wind power within the allotted time frame. There are numerous ways to implement these types of various exit strategies.

First, it is wise to counter the original agreement with protective clauses that can shorten the life span of the written contract offered by the wind developer. Farmers must protect their wind rights that also tie up land rights. For example, it is best to include a clause in the contract that terminates the written land lease agreement if the wind project is not in commercial operation within 3 years.

Second, farmers should also be aware that some states set mandatory time limits on wind option contracts or wind easements. For example, North Dakota state law terminates wind option agreements if wind development has not occurred within 5 years after the agreement commences.

Finally, Farmers need to be careful of wind energy “checkerboarding.” There may be many wind developers offering wind power contracts within the same locality. This may cause confusion to the land owner if he/she happens to sign an agreement with developer X and finds out that he/she is land locked by other landowners who signed with developer Y. This creates a checkerboard pattern that proves worthless to the landowner who exercises his contract with developer X.

In summary, issues associated with option contracts/lease agreements relative to wind energy are numerous and complicated. The wind industry is always changing with the political climate and the financial market system. Landowners must protect their assets with proper negotiating tools and experienced advice that can promote a win/win situation for a sufficient payment of royalties.

Friday, May 15, 2009

Indiana and Wind Energy Contracts

The future of wind energy is expected to help lead the way to secure America’s leadership in reliable, clean energy technology and it is also projected to make up 20% of the electric power needs in the U.S. by 2030. According to the American Wind Energy Association, 5,144 Megawatts (MW) of wind power capacity were installed in 2007 and an additional 8,000 MW were installed in 2008.

In May of 2009, there are a total 626 wind projects scheduled for development. As a result, this market boom has become the hottest ticket for land owners and economic development throughout the U.S. Leasing companies and developers are buying up lease agreements (i.e. - known as option contracts) for the potential development of large-scale wind energy projects all over North America.

In Indiana, aerial wind map data show favorable wind shear at 300 feet (100 meters) above the earth’s surface in Benton, White, Lagrange and Clinton counties. Wind developers search for site selection opportunities, at a minimum, that offer average wind speeds of 6 m/s (meters per second). These wind speeds are required in order to maximize the greatest return on an investment for large wind turbine systems.

In LaGrange County, there is an area in the southwest part of the county that is an ideal setting for a wind energy project. This location has the greatest potential for opportunity. It is located in a rural area with significant wind speeds at 100 meters. It is also conveniently located near an existing electric transmission line and has good access to roads and open spaces. These key characters are essential for the making of a commercial-scale wind farm.

However, property owners should understand what land rights are lost in lease agreements or option contracts. There are numerous clauses within these legal documents that property owners should review and potentially negotiate better terms prior to singing on the bottom line.

The following is a short list of clauses that may appear in wind lease contracts.

Confidentiality clause – a wind developer may prevent a discussion with other landowners also involved in the project; and/or the developer may prohibit the release of preliminary wind collection data for future use to the land owner.

Length of the lease clause – the developer’s term limits or extensions rights of the contract may prevent other future business opportunities with other new developers if the current party is unable to finance or develop the project.

Compensation clause – This is dynamic because there are many payment options for the developing parcel of land for wind energy production. For example, a percentage of revenue from electric sales, lump sum payouts, fixed land payouts or any combination of these. Also, there are tax consequences for each payment type such as property tax increase due to land improvements. Renewable energy credits (RECs) and federal tax credits may also be negotiated as part of the compensation package for land owners if developers of large-scale projects get these as additional compensation from the government.

Assignment clause – This clause may permit the wind developer to sell or transfer the lease rights to another party at any time for any reason.

Choice of law/Venue clause – Any litigation that arises under the contract must apply to the laws of the state in which the developer is located and/or heard by the court in the developer’s home state. You have the right to negotiate that the venue be Indiana or any other state.

Force Majure clause – permits the developer to extend the time of the lease if such a delay may be caused by any natural causes, law, legal action or requirement of a government agency, court or utility, etc.

In summary, it is always wise to consult with experienced legal counsel and real estate professionals that specialize in land lease agreements for the development of investment opportunities for energy projects. In addition, there are a lot of other concerns associated with property lease agreements, such as but not limited to; land scope and usage, liens and encumbrances, contract termination agreements, bonding and insurance, bankruptcy or insolvency, site remediation and end of project life, permits and conditions, creditor responsibilities, federal farm programs, third party liability, employee safety, etc.

6 comments:

  1. Thank you very much for publishing this information. I am in the midst of trying to negotiate with an LLC right now. So much of what you said is true. I am reading reading reading. Thankful for the internet!!!!

    ReplyDelete
  2. A large group landowners have been contacted and are in the midst of beggining negotiations with a small company-in your article i beleive said avoid-is their potential to talk to one of the "larger developers" for a better contract?

    ReplyDelete
    Replies
    1. I just caught your comments...email or call me @574-340-1248 (Rodeagelson@gmail.com

      Delete
  3. This comment has been removed by a blog administrator.

    ReplyDelete
  4. There is a chance you are eligible for a new solar energy rebate program.
    Click here and find out if you qualify now!

    ReplyDelete
  5. Get daily ideas and methods for earning THOUSANDS OF DOLLARS per day ONLINE for FREE.
    GET FREE ACCESS INSTANLY

    ReplyDelete